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Queensland Economic Advocacy Solutions

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Just how competitive are our State's Payroll Tax arrangements for Queensland Businesses?

We often hear how competitive Queensland’s payroll tax regime is with politicians boasting that we have the lowest rate at 4.75% and one of the highest exemption thresholds. However our competitiveness is not as straight forward as many people think.  So just how competitive are Queensland's payroll tax arrangements?  Well the answer to that question depends on what size of business you happen to be.

I was reminded by one of Brisbane’s key businesses in responding to an earlier blog on Payroll tax that Queensland is one of only two States (WA is the other) where by we have a diminishing payroll tax exemption threshold as opposed to a flat exemption threshold like in NSW and Victoria.   What this means is that our exemption threshold reduces to zero between payrolls of $1.1 million and $5.5 million.  More specifically our $1.1 million exemption threshold phases to zero at a rate of $1 in every $4 of taxable wages above the threshold.  What this means is that businesses with taxable wages above $5.5 million in Queensland actually have no exemption threshold at all!

So what does this practically mean?  Well for smaller businesses they benefit from our higher exemption threshold and for larger businesses they benefit from our lowest payroll tax rate that makes up for the fact that they do not have exempted wages at all.  However for middle sized businesses they miss out on the benefit of an exemption threshold that places them in an uncompetitive position against interstate rivals.  The lower payroll tax rate unfortunately for these businesses is not enough to make up for this.  The trouble zone for medium sized businesses is between payrolls of $4 million and $20 million and there are approximately 5,000 businesses who find themselves in this uncompetitive zone.  To put this into perspective just a little over 20,000 businesses pay payroll tax in Queensland so about 25 per cent of these find themselves uncompetitive to businesses for example in Victoria or South Australia.

Queensland Treasurer, Andrew Fraser, diligently recognised this specific aberration in his 2008-2009 State Budget:

The Queensland Government recognises the effective marginal payroll tax rate immediately above the exemption threshold has a particular impact on the tax payable by medium sized businesses. This Budget further improves the competitiveness of Queensland’s payroll tax regime by extending the $1 million deduction such that it phases out at a rate of $1 in every $4 of taxable wages above the threshold, rather than $1 in every $3. ………….The Queensland Government has also announced a policy decision to review the rate at which the deduction phases out in subsequent Budgets.

However, since June 2008 wages have grown by 30 per cent and it is now time to review our exemption threshold arrangements because our competitiveness is compromised for medium sized businesses. We should pause and spare a thought for this often overlooked demographic of the business community.   Medium sized businesses compete against three groups: small businesses who don't pay payroll tax, large business who have the scale to offset payroll tax and international businesses who chances are don't pay payroll tax, a woeful tax on giving a person a job!

In summary if any politician tells you Queensland has the most competitive payroll tax arrangements in Australia take this with a grain of salt because for about 5,000 businesses this is simply not the case.  This is particularly relevant as we currently frame the State Budget for 2018-19.

The Queensland Productivity Commission - unloved or just underutilised?

I currently liken the Queensland Productivity Commission (QPC) to a team’s star player who is being forced to sit on the sideline as the big game unfolds.

The QPC is the State's independent economic review body established by former Treasurer, Curtis Pitt, in 2015 to review complex economic and regulatory issues and propose policy reforms to government. The Commission has a fairly broad mandate including:

  1. to undertake inquiries about matters relating to productivity, economic development and industry in Queensland as directed by the Minister;
  2. to receive, investigate and report on complaints about the alleged failures of government agencies to comply with the principle of competitive neutrality; and
  3. to conduct research and analysis of, and to make recommendations about, regulatory matters as directed by the Minister; 

Whenever I visit the QPC website I am always impressed by the calibre and professionalism of their work.  This week I checked in with what the Commission has been up to and to be blunt they are being massively underutilised at present.  You only have to look at their current inquiries to see that they are far from overworked:

Under the QPC Act, the Queensland Government has up to six months to provide a response to these reports. I am in particular looking forward to the State Government's response to the Manufacturing Report that is due by the end of this month.

In short, there are no active inquiries that the Commission has underway.  The QPC is instead having to resort to conducting training and writing staff research papers to keep themselves occupied. If you do find the time, check out their excellent research papers: Queensland Productivity Update 2016-17 and Housing in Queensland: Affordability and Preferences.  So here’s the rub, there is a vast difference between producing work that is ‘interesting’ such as these research papers (albeit of very good quality) and work that is ‘useful’. 

I find it incredulous the QPC is not being properly put to use at present.  In 2016–17, the Commission had 22 staff and a total expenditure of $4.0 million, with wages and salaries being the largest component (72 per cent).  That is a lot of money sitting around idle but more importantly that is an incredible amount of human talent not being put to good use.

Fact of the matter is there are numerous pieces of legislation before the Queensland Legislative Assembly that would benefit from QPC involvement particularly when key Bills are unaccompanied by a Regulatory Impact Statement.  Examples include:

Another example is the recent decision by the State Government increasing the 3% transfer duty surcharge applied to foreign buyers of Queensland property to 7% (raising $99m over 3 years) and a new land tax category for 850 large property holdings greater than $10m (raising $227m over 3 years).  These policy decisions would have benefited substantially from QPC's robust assessment rather than their development as part of politicking.

In closing, the Queensland Productivity Commission is being forced to sit on the sidelines and I would love to see them enter the game to value add to policy development in this State.  

Queensland still wins from GST carve-up but by not as much

The annual process conducted by the Commonwealth Grants Commission came to head today with the carve-up of the $65.8 billion in GST revenue to be collected across Australia in 2018-19.  Referred to as ‘Horizontal Fiscal Equalisation’ the process recognises the concept under Federation that no State should be worse off than the others or expressed alternatively the standard of services across the States should be consistent with one another.

Courtesy of the ‘independent umpire’ Queensland will receive $401 million less (-2.7%) in GST revenue in 2018-19 compared to the previous financial year (2017-18).  However, before we get too alarmed, this is broadly consistent with what the State Government budgeted for and Queensland will still receive $14.4 billion compared to $14.8 billion in 2017-18 and $14 billion in 2016-17.

Furthermore, whilst Queensland's share falls from 23.8% to 22%, our population share is 20% and we will continue to get $1.10 back for every $1 dollar raised here.  That is, our State continues to be a net recipient of the carve-up.

Why Queensland’s share has declined is complicated but in simplest terms our 'need' relative to others has declined both in the areas of revenue and expenditure.  Key reasons cited were:

  • Queensland’s net natural disaster expenses were almost $1.5 billion lower in 2016-17 compared to 2013-14;
  • An increase in the total value of coal production increased Queensland's relative revenue raising capacity.  More specifically, for every 1% change in the coaking coal price we receive $37 million extra in royalties and for every 1% increase in volume we receive an an extra $23 million in royalties.  Based on current coal prices and volumes the State should receive an extra $1 to $2 billion in royalties;
  • Commonwealth payments in road and rail infrastructure payments increased; and
  • Queensland's population grew by less than other States.

In a way we can look at our reduction in GST funding as a good thing as Queensland in effect is less disadvantaged because we are now stronger financially.  Both our expenditure and revenue 'needs' have reduced relative to other States.  

Finally, there was also some confusion with the separate Productivity Commission Review currently underway whose recommendations will only have application in future years and at the earliest 2019-20. Please refer to my earlier blog for what is going on here.

Is hosting the 2018 Commonwealth Games really worth it?

On the eve of the Commonwealth Games it is timely to discuss whether this event is really worth the investment of taxpayer dollars and the inconvenience for the Queensland Business Community.

With competition happening across the State (4-15 April 2018), GC2018 is set to inject potentially billions of dollars into the Queensland economy.  There will be 6,600 athletes and team officials, 15,000 volunteers and more than 670,000 visitors, plus a television audience greater than 1.5 billion worldwide.  

When the State Government in 2011 successfully bided for GC2018 it was envisaged the Games would cost $1.075 billion to run, with a further $917 million to be spent on capital investments including the Games Village ($640 million) and sporting facilities.  At the same time the Games were forecasted to generate up to $2 billion in economic benefits, creating up to 30,000 jobs.  The theory was that the Games would provide the State with not only an opportunity to showcase Queensland as a great tourism destination, but would also drive investment and opportunities for local businesses.

However the only real update to these numbers was when Peter Beattie took the helm as Chair and off the cuff estimated the Games would in fact generate between $3 billion to $4 billion in economic benefit.  He went on to confirm that the cost would be in the area of $2 billion (partly offset by approximately $500 million in ticket sales).  He believed that the Games would generate between $1.5 billion to $2 billion in net economic benefit citing it as ‘gut instinct’.  This effectively doubled the gross economic benefit without any real evidence to back up the claim and one journalist immediately retorted with ‘that’s one hell of a gut!’

Part of the problem is that the cost is largely known where as the benefit is very difficult to quantify.  Back in 2011 it was hoped that the Commonwealth Games would bring with it both direct or indirect opportunities through increased tourism, construction, business services, as well as improved hospitality and customer service.

If we get it right the link between hosting a Commonwealth Games and the potential for hosting future international events is strong and will provide a positive boost for the Queensland business community and tourism for decades.

In addition the State Government has had a fantastic opportunity to provide stimulation to many businesses through its procurement program. The stimulus from the GC2018 procurement program is substantial and has been across three distinct areas including the construction of venues; services prior to the games including training, recruitment and information technology; and services during the coming two weeks including catering and equipment.

The State Government openly resolved to ensure that the $2 billion procurement spend flowed to Queensland businesses so the potential 30,000 jobs would be filled by Queenslanders.  Yes there were obvious misses in terms of the overseas organising of the Opening Ceremony, athlete mattresses sourced from abroad and lack of Queensland wines.  However, the State Government can also highlight for example:

  • As at June 2017, of the $657 million in construction contracts for the venues and Games Village, around 90 per cent of the value was awarded to South East Queensland businesses ($277 million to Gold Coast and $313 million to other South East Queensland businesses);
  • 1,500 jobs were created in the construction of the Games Village;
  • 390 jobs were created in the construction of the Gold Coast Sport and Leisure Centre completed in April 2017 at a cost of $105.3 million;
  • 130 jobs were created in the construction Coomera Indoor Sports Centre completed in August 2016 at a cost of $40.2 million;
  • 190 jobs were created in the construction of the Anna Meares Velodrome Chandler was completed in November 2016 at a cost of $60.1 million; and
  • 1,500 direct employees of GOLDOC.

​Regardless of the outcome in this area, many Queensland small businesses over the past five years and as a legacy of GC2018 have been 'skilled up' in State Government procurement processes that will hopefully enable them to tap into future opportunities.  

The GC2018 was also an opportunity to encourage businesses to take a renewed approach to customer service and focus on what product and service offerings set Queensland apart from the rest of the country, and other nearby nations.  Key programs such as the ‘Be My Guest’ initiative potentially means lasting and exceptional customer service as another of the many legacies that can come from the Games.

Each business, that an athlete their family or friends frequents, is a potential ambassador for Queensland.  It is imperative that Gold Coast businesses offer exceptional customer service and overall visitor experience so that each of these athletes, friends and family return home to sing our praises over how friendly we are and that they too should come here.  Lets hope that businesses equally get it right over the coming weeks. 

A successful GC2018 is an interesting concept.  The mistakes that we may sight in the coming weeks are essentially mistakes made years ago in the planning stages.  However, what I am more interested in is, has the State Government delivered on its promise to the Queensland business community? The rhetoric is the State Government has endeavoured to go the extra mile to assist Queensland business to be part of the GC2018 opportunity.

In summary, there is no question the Games will showcase the iconic Gold Coast and Queensland’s spectacular destinations to a global audience that will have a return on investment for many years in the area of tourism. But there are questions that must be asked after the Games and answered not with ‘gut instincts’ but with evidence. There needs to be some accountability and transparency and the final numbers should be reported by the State Government as a matter of priority. What should be answered are:

Did the lion’s share of the procurement flow to Queensland businesses? Are businesses better positioned to access future procurement opportunities? Has customer service really and sustainably improved? What was the cost? What was the economic benefit? How many jobs were created?  In short .......  was it worth it and did the reality match the hype for business?

My 'gut instinct' tells me that the 2018 Commonwealth Games will leave a lasting and positive legacy for many Queensland businesses that will inevitably deliver a 'net economic benefit' to Queensland.  In the mean time spare a thought for those businesses on the Gold Coast who are reporting a slump associated with the dislocation of hosting a major sporting event of this scale and magnitude.  For these businesses the bigger picture is actually a current hindrance without immediate financial recompense. 

Key Facts

  • $2 billion in procurement spend.
  • Potential $2 billion and $4 billion in economic benefit
  • More than 1.1 million visitors are expected in the lead up to, during and post the Games spending more than $870 million in Queensland.
  • Within this it is forecast that the Games themselves will attract approximately 672,000 visitors, spending $323 million (356,000 day trippers, spending $35 million; 265,000 domestic overnight visitors, spending $225 million 50,000 overseas visitors (including more than 6000 athletes and officials), spending $63 million).
  • Apart from those visitors attending the Games, the event is predicted to attract an additional 490 000 visitors, spending $550 million over the period of nine years (four years pre and post Games) as an induced effect (100 000 visitors from overseas, spending $143 million and 390 000 domestic visitors, spending $407 million.)

Source: https://www.embracing2018.com/sites/default/files/resource/ahead-of-the-games-report-nov-2017.pdf

 

Infrastructure Australia's 2018 Priority List for Queensland

QEAS has provided a brief explanation of Infrastructure Australia's 'Infrastructure Priority List' and has also provided a full list of Queensland Projects that are potentially in the pipeline for Federal Government funding.

High Priority Projects

Potential infrastructure solutions for which a full business case has been completed and been positively assessed by the Infrastructure Australia Board. A High Priority Project addresses a major problem or opportunity of national significance.

  1. Brisbane Metro  Brisbane - inner city public transport network capacity

Priority Projects

Potential infrastructure solutions for which a full business case has been completed and been positively assessed by the Infrastructure Australia Board. A Priority Project addresses a nationally-significant problem or opportunity.

  1. Beerburrum to Nambour Rail Upgrade Queensland Queensland north coast rail congestion.
  2. Inland Rail (Melbourne to Brisbane) - National Freight connectivity Melbourne–Brisbane.

High Priority Initiatives

Potential infrastructure solutions for which a business case has not yet been completed. A High Priority Initiative seeks to address a major problem or opportunity of national significance.

  1. Ipswich Motorway Upgrade Rocklea to Darra (remaining sections)   Brisbane–Ipswich road network capacity
  2. Cross River Rail: A rail solution to support an integrated passenger transport network in SEQ - CBD public transport capacity
  3. Port of Brisbane dedicated freight rail connection - Queensland Freight rail access to Port of Brisbane.

Priority Initiatives

Potential infrastructure solutions for which a business case has not yet been completed. A Priority Initiative seeks to address a problem or opportunity of national significance.

  1. M1 Pacific Motorway (Eight Mile Plains to Daisy Hill)  Brisbane-Gold Coast road network capacity
  2. Brisbane to Gold Coast transport corridor upgrades - Brisbane to Gold Coast transport capacity
  3. Gold Coast Rail Line capacity improvement (Kuraby to Beenleigh)  Brisbane-Gold Coast rail capacity
  4. M1 Pacific Motorway (Varsity Lakes to Tugun) - M1 Pacific Motorway capacity
  5. Bruce Highway Upgrade - Queensland coastal cities connectivity
  6. Cunningham Highway – Yamanto Interchange to Ebenezer Creek  Cunningham Highway – Yamanto to Ebenezer/ Amberley congestion
  7. Mount Isa–Townsville rail corridor upgrade - Mt Isa–Townsville rail capacity Medium
  8. Preserve corridor for Salisbury to Beaudesert rail connection - Future urban rail connection to Beaudesert
  9. Lower Fitzroy River water infrastructure development - Opportunity to develop industry and agriculture in Fitzroy region
  10. Gladstone Port land and sea access upgrade - Land and sea access to Port of Gladstone

Queensland’s population to hit five million thanks to jobs growth

Yesterday (Thursday 22 March 2018) we had an occurrence of the Australian Bureau of Statistics’ labour market data being released at the same time as latest estimates of population. This was a great opportunity to see the interconnection of how demography is influenced by economics.

Firstly in respect to the labour market, latest data for February 2018 reveals a steady and prevailing trend of improvement for Queensland. In the month of February 2018 there were:

  • 4,200 new jobs created (2nd highest behind NSW); and
  • 110,000 jobs created over the past 12 months (again the 2nd highest result behind only NSW) with employment growth of 4.6% over the past 12 months (the highest of all States). 

You would have to go back to prior to the GFC to see growth of that high achieved across a consecutive period of time.  However the data also revealed Queensland is a victim of its own success.

People previously on home duties or further educating themselves because they didn’t think they could get a job are now returning to the labour market to get the jobs that are now being widely offered. In addition persons interstate are now relocating here to take up some of those jobs. As a result, Queensland’s number of unemployed persons has risen and our unemployment rate remains stuck at 6.1 per cent, 0.6 per cent above the national unemployment rate of 5.5 per cent. Queensland continues to have the second highest unemployment rate of all States.

If you judge the labour market on how many jobs are being created or how many employment hours are being worked, Queensland is doing very well. If you judge the State on the unemployment rate then obviously we are not doing that well. 

So how does population enter the equation.  Well population flows towards employment opportunity or where the jobs are being created. The data also reveals Queensland has now replaced Victoria as the destination of choice of where people are moving to in Australia.

Queensland’s population grew by 1.7 per cent over the past 12 months (second highest of all States) and compares to national growth of 1.6 per cent. The Sunshine State now has a resident population of 4,948,700 persons tantalisingly close to 5 million. Indeed our population is projected to hit 5 million in May 2018.

Queensland’s Population growth comes from three areas:

  • Natural increase (births – deaths) up 31,000 in past 12 months;
  • Net overseas migration up 31,000 in past 12 months; and
  • Net interstate migration up 19,000 in past twelve months (12,000 from NSW).

One of the most interesting points about Queensland’s population is this:

  • In 1901, Queensland’s population was half a million persons, a tenth of what it is today;
  • It then took 37 years to hit one million in 1938;
  • another 36 years to hit two million in 1974;
  • only another 18 years to hit three million in 1992;
  • just 14 years to hit four million in 2006; and
  • now just 12 years to hit five million.

Queensland has had the highest population growth of any State over the past 25 years (growing by 63%) and things are not expected to change with the State forecasted to grow by another 63% in the next 25 years only behind WA.

This all sounds great right? Well careful what you wish for as population growth places enormous demand on our infrastructure.

If traffic congestion, waiting times at hospitals, overcrowded classrooms, packed trains and buses, crowded living spaces annoy you then get ready for more of the same. Our State’s swelling population will require serious thought and careful planning to stay ahead of the curve and not behind it where we unquestionably find ourselves at present.

Does Queensland strike more today than in the past?

Does Queensland strike more today than in the past? Regardless of perception the answer is a categorical 'no'.  Latest data from the ABS confirms that the number days lost due to industrial action in Queensland in 2017 was 32,200.  If that number sounds high, keep in mind there are 2.47 million Queenslanders in work.  In addition this total is effectively half of the 25 year average (62,000) and our workforce over that period has grown significantly yet total days lost has declined.

In terms of Queensland’s percentage of total days lost in Australia, there was a concerning trend in both 2015 and 2016 where Queensland was accounting for a disproportionate amount of days lost.  However this trend has now settled, back to approximately 22 per cent, which is close to the State’s percentage of the total Australian workforce.

Industrial action is taken by employees to settle a workplace dispute about working conditions and includes when employees don't come to work; fail or refuse to perform any work at all; delay or put a ban or limit on the work they do; and / or are locked out of a workplace by their employer.

Examples of industrial action in 2017 in Queensland ranged from BCC bus drivers, childcare workers, Centrelink staff through to the prominent Glencore strike action.

At present we have relatively low incidence but high economic cost of industrial action yet change is potentially on its way that could see both escalate substantially. The very prominent ACTU secretary, Sally McManus, believes and has stated publicly that onerous industrial relations laws needed to change because it is too hard to take industrial action.

"If employers don't give pay rises if you ask nicely, the only thing workers have left is to exercise their ability to withdraw their labour.  If you take that away then they don't have bargaining power." Sally McManus ACTU secretary

The area of the Fair Work Act relating to this issue is complex but in short there are a series of actions that must be taken for industrial action to be 'protected' (ie allowed for under the Act).

If the industrial action is unprotected the Fair Work Commission can suspend or end the action on the basis that it can cause significant economic harm to the employers or cause significant damage to the Australian economy or important parts of it.

A key point for the employee is that if the industrial action is ‘protected’ then an employer must not threaten to dismiss or discriminate against the employee taking the action.

For more information on industrial action: https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/rights-and-obligations/industrial-action

The reality is the level of industrial action in Queensland and Australia has fallen not because it is too difficult to take action but mainly as a result of secret ballots for industrial action being introduced ie individuals can no longer be coerced or feel pressured from ‘mates’ into voting to take strike action.

If anything this issue to my mind is not really about the extent of industrial action but about why it is being taken.  Officially the top five reasons for industrial action in Australia over the past 10 years have been as follows:

  1. Enterprise Bargaining related; Employment conditions
  2. Enterprise Bargaining related; Remuneration
  3. Non-Enterprise Bargaining related; Employment conditions
  4. Non-Enterprise Bargaining related; Health and safety
  5. Non-Enterprise Bargaining related; Union issues

The case for change in this area is very weak by the ACTU and if anything laws could be tightened to take account of ‘industrial bastardry”. 

What do I mean by this, well reasons for industrial action often appear admirable but the reality can be otherwise.  For example action taken on the grounds of ‘health and safety’ are often inappropriately used as leverage to achieve other industrial purposes.  Those purposes often relate to a union enterprise agreement or subcontractor needing a union enterprise agreement that specifies more generous employment conditions and remuneration.

My view is that the area within the Fair Work Act relating to industrial action is actually working reasonably well and should not be tampered with.  The case for tightening the laws is equally as strong as the case for loosening them.

The problem however is that this issue is rapidly becoming one about ‘votes’ and not the relationship between employees and their employer.   The business community should be very wary of politicians seeking to derive political mileage out of workplace relations as recent history holds that businesses come out second best. 

Data sourced from ABS Catalogue: 6321.0.55.001 - Industrial Disputes, Australia, Dec 2017 

Unrealistic ambit claims characterise 2017-18 Annual Wage Review

Each year the Fair Work Commission (FWC) is responsible for reviewing and setting minimum wages for employees as part of an annual wage review.  The Commission issues a decision for the national minimum wage (NMW) and for pay rates for all 122 modern awards, which comes into operation on 1 July for the following financial year.

The 2017-18 Annual Wage Review is now underway for wage rates in the 2018-19 financial year.  As part of the Review the FWC considers:

  • the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and
  • promoting social inclusion through increased workforce participation; and
  • relative living standards and the needs of the low paid; and
  • the principle of equal remuneration for work of equal or comparable value; and
  • providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

As part of this process the Commission invites relevant parties (Unions, employer groups, State and Federal Governments and Oppositions) to put forward their own recommended increase.   Submissions closed yesterday and disappointingly this process is often rife with ambit claims (referred to as a Blue Sky Demand) and unfortunately the 2017-18 Annual Wage Review is no different.

The queen amongst these is obviously the $50 increase proposed by the ACTU (more than double last year’s increase) but also some employer groups recommending no increase at all.

Most of the employer submissions are proposing in their own words ‘modest’ increases between 1.8 and 1.9 per cent.  This contrasts with Reserve Bank of Australia and Federal Budget forecasts of 2.25 per cent for inflation and 2.75 per cent in the wage price index for 2018-19.

For several years during the 1990's I was involved in negotiating consensus positions between a State peak industry body and the State trade labour council that was effectively rubber stamped by the State Industrial Commission.  I often think back to those days and perhaps foolishly wish that we could return to them as I believe it is in all employee and employer interests for unions and employer groups to work together to try and nut out a consensus position.  This potentially achieves balance between the competing outcomes of profitability, more employment hours and higher wages leading to an overall lift in the standard of living. 

Instead we have the same old ambit claims from both sides when we know on the balance of the past the FWC will land with a recommendation somewhere in the range of $15.80 and $26.00. Yet employer groups come with a low-ball offer and Unions with a high ball one. Analysis of the past 8 years reveals the average increase was $18.90 and percentage increase of 3.1 per cent.

Based on the current performance of the National Economy it is reasonable to expect that the FWC will land at a ruling in the upper range and I would anticipate it will be between 3 and 4 per cent or $21 and $28 dollars.

Any recommendation by unions or employer groups outside that band is realistically not even in the ballpark and it is perhaps time for them to rethink their adversarial approach to this process.

Queensland's domestic economic growth by the numbers

Latest data from the Australian Bureau of Statistics reveals Queensland's domestic economy is tracking relatively well although growth continues to lag other States. QEAS takes look at this important indicator.

​When gauging the overall performance of the Queensland economy there are two indicators that can be used.  One is the annual ABS Catalogue 5220.0 that measures 'Gross State Product' (GSP) and the other is ABS's quarterly catalogue 5206.0 that measures State Final Demand (SFD).  In short SFD measures household consumption expenditure, government consumption expenditure, public sector capital expenditure and private sector capital expenditure.  GSP measures these four components plus net international trade (i.e. exports minus imports).  

In recent times SFD has provided a much better indication of the overall health of the Queensland domestic economy.  It is a measure that more aligns with what businesses, employees and broader community sees and feels each day.  GSP's inclusion of exports whilst vitally important captures growth that is not felt as much domestically in supply chains and jobs (LNG export is a very good example of this point). 

So in turning to the data Queensland's quarterly SFD growth increased by a healthy 0.7 per cent in trend terms and 0.9 per cent seasonally adjusted in the December quarter 2017 and compares to national growth of 0.8 per cent and 0.6 per cent respectively.  Over the past year (December Qtr 2016 - December Qtr 2018) Queensland's domestic economy has grown by 2.9 per cent in trend terms and 2.6 per cent seasonally adjusted.  This growth was slightly less than national growth of 3.3 per cent and 3.1 per cent respectively.

Queensland growth over the past year has mainly been driven by household and government consumption spending and private sector capital expenditure. In trend terms general government consumption expenditure increased by 4.9 per cent, household consumption expenditure increased by 1.8 per cent and private sector capital expenditure increased by a very healthy 5.3 per cent (albeit off a very low base).  The negative weight was public sector capital expenditure that continues to be significantly less than long-term trend levels.

In summary, the data reveals Queensland's domestic economy has moved on from the contraction experienced between 2014 - 2016 and is now growing steadily.  This is unquestionably good news for jobs, as job creation as a rule of thumb lags economic growth by six months and we should inevitably see the State's unemployment rate fall below its stubborn and cemented 6 per cent.  The data will also hopefully mean wages growth in the not too distant future.  The way to look at the overall relationship between economic activity, jobs and wages is domestic economic activity precedes job creation which precedes a tightening in the labour market leading to wages growth.

 

The Health of the Queensland Business Community (The Good and the Bad)

The Australian Bureau of Statistics this week released their annual 'Counts of Australian Businesses', which does precisely that, it counts the number businesses actively trading as at June 30, 2012, 2013, 2014, 2015, 2016 and 2017.  It also provides rates of business entries and exits as well as counts of the survival of businesses.  It represents a very good snapshot in gauging the ‘overall’ health of the Queensland business community and is very comprehensive as it is sourced directly from the Australian Business Register (ABR) comprised of businesses obtaining an Australian Business Number (ABN).

The news for Queensland is excellent with an additional 12,031 businesses operating in 2016-17 compared to a year earlier.  Business numbers in the Sunshine State have consistently been on the rise since 2013-14.  A growth rate of 2.8 per cent in 2016-17 is the highest of the past five years and places Queensland in third position behind only NSW and Victoria.

Of the 437,628 businesses operating in 2016-17, 97.5 per cent or 425,597 are defined as being small business employing less than 20 employees.  Growth in overall numbers has consistently come from this demographic but the percentage proportion of small businesses has remained relatively steady over the past five years.  Medium sized businesses make up 2.4 per cent and large businesses just 0.1 per cent. 

Drilling down into the data there are some very good signs for Queensland.  The number of new entries has consistently been rising over the past five years up from 49,569 in 2012-13 to 64,097 in 2016-17.  The entry rate as a percentage of total businesses has over that period risen from 11.5 per cent to an encouraging 15.1 per cent.

Conversely the number of businesses closing or exiting has fallen from 63,747 in 2012-13 to 52,480 in 2016-17.  The exit rate over this period has fallen from 14.8 per cent to a much better 12.3 per cent. 

Pleasingly both the Queensland entry and exit rates are now starting to come back into the pack compared with other States.  Once upon a time we were the worst performing State and this is no longer the case with Western Australia in that dubious position.

For some excellent analysis on where the growth is coming from in terms of industry sector and geographical location please refer to Gene Tunny’s Queensland Economy Watch post here.

The caveat to this article is of course that in discussing 'overall' numbers, just how tough it is for individual businesses is masked.  Indeed our business survival rate continues to be the lowest in the Country.  Of those Queensland businesses operating in 2013-14,  only 62.5 per cent continue to be in existence in 2016-17, the lowest of all States.  Furthermore of those ‘new’ businesses that set up in 2013-14 only 54.3 per cent continued to operate in 2016-17, again the lowest survival rate of all States.

In summary the recent trend is a very good one for Queensland but decision makers must continue to do everything they can to maximise the likelihood that those persons who make the bold decision to 'hang up their own shingle' are successful in doing so.  

Definitions:

A business entry is defined as a business which is actively trading at 30 June in the reference year but was not actively trading at 30 June the previous year. 
This may occur when 

  • a business registers for an ABN with a GST role
  • a GST role is assigned to an existing ABN that did not previously have this role 
  • a business recommences remitting BAS data after a period where they had become a Long Term Non Remitter
  • a business recommenced its GST role after it had been cancelled
  • a business unit moves between the profiled and the non-profiled populations. 

A business exit is defined as a business which was actively trading at 30 June in the previous year, but was not actively trading as at 30 June in the reference year. It is important to note that a business exit does not necessarily equate to a business failure. A business exit may occur when

  • a business cancels its ABN or GST role
  • when the business ceases to remit GST for at least five consecutive quarters (or 3 consecutive years for annual remitters)
  • a business moves out of or in to the profiled population
  • a business is sold and the ABN changes
  • a business is taken over or involved in a merger

A surviving business is defined as a business that is active at 30 June of the current year and was also active at 30 June of the previous year. 
In this release, two types of survivors are recorded. 

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